Equilibrium Price And Quantity Quiz Questions

The given statement is true because it states that someone who wants a unit of milk with every three units of coffee might have a utility function represented by u=min(1/3c, m). This utility function implies that the person's utility depends on the minimum value between 1/3 of the coffee units and the milk units. This suggests that the person values having a balanced ratio of milk to coffee, where the amount of milk is at least one-third of the amount of coffee.

The correct answer is Maddie considers these goods to be perfect substitutes with one another. This means that Maddie is willing to exchange 2 units of x for 1 unit of y, indicating that she values x and y equally. In other words, she sees no difference in utility between consuming 2 units of x versus 1 unit of y. This suggests that she can easily substitute one good for the other without any change in satisfaction or preference.

The price elasticity of demand is calculated by the percentage change in quantity demanded divided by the percentage change in price. In this case, the formula for price elasticity of demand is (-7/Q)*(P/Q), where Q is the quantity demanded and P is the price. At Q = 240, the price elasticity of demand can be calculated as (-7/240)*(P/240). Since the price elasticity of demand is negative, it means that as price increases, quantity demanded decreases. Therefore, the price elasticity of demand for this good is always less than -1, not greater than -1. Hence, the answer is False.

False. Loss aversion refers to the tendency of individuals to experience greater pain or discomfort from losing something compared to the pleasure or satisfaction they feel from gaining something of equal value. Therefore, the magnitude of pain a loss averse individual feels from a loss is actually greater than the joy felt from a gain.

Bill's reaction to the price increase suggests that he decreased his consumption of gadgets. This decrease in consumption indicates that the substitution effect, which occurs when a consumer switches to a cheaper alternative due to a price increase, was larger in magnitude than the income effect. The income effect refers to the change in consumption resulting from a change in purchasing power due to a change in income. Therefore, the correct statement is that the size of Bill's substitution effect was larger than the size of his income effect.

The correct answer is A and B are correct. This means that both statements A and B accurately describe Buck's budget. Statement A states that Buck can consume at most 5 x or 6 y per week, which means that he can either purchase 5 units of x or 6 units of y with his budget of 60. Statement B states that it is possible for Buck to consume 3 x and 2.4 y every week, which means that he can allocate his budget to purchase 3 units of x and 2.4 units of y. Both of these statements provide accurate descriptions of Buck's budget.

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The given answer is correct because all of the statements mentioned are true based on the information provided. The first statement states that if the marginal rate of transformation is -1, Alice would want to consume 1.5 salads for each cheeseburger she consumes. The second statement states that if the marginal rate of transformation is -1 and the utility she obtains from the last dollar spent on cheeseburgers is smaller than the utility from spending the last dollar on salads, she should decrease her consumption of cheeseburgers. The third statement states that if the marginal rate of transformation is -3/2, she should consume an equal number of cheeseburgers and salads to maximize utility. Therefore, all the statements are correct.

The given answer states that both A and B are correct. In option A, it is mentioned that when Randy has 10c and 2.5p, his utility is 5. This can be calculated by substituting the given values into the Cobb-Douglas utility function, U=(cp)^1/2. Option B states that the marginal rate of substitution for these goods is -p/c. This means that for every unit of cola Randy gives up, he gains -p/c units of peanuts in order to maintain the same level of utility. Both of these statements are supported by the information given in the question.

The given answer is correct because all of the statements mentioned are true based on the information provided. According to Ben's utility function, where U=(mc)^1/2, he would consume equal amounts of cookies and milk at his utility maximizing bundle. Additionally, since Ben views milk and cookies as imperfect substitutes, every time he buys a unit of cookies, he loses a unit of milk. Lastly, if Ben chooses a bundle of cookies and milk where the marginal rate of substitution of milk is more than the marginal rate of transformation of milk, he should readjust and buy more cookies. Therefore, all the statements mentioned in the answer are correct.

Suppliers bear the brunt of the excise tax because the elasticity of supply is larger in magnitude than consumers' elasticity of demand. This means that suppliers are less responsive to changes in price compared to consumers. As a result, when the tax is imposed, suppliers are less able to shift the burden of the tax onto consumers by increasing prices. Therefore, they end up paying more than $2.50 of the tax.

The correct answer is b and c are correct. This is because the marginal rate of substitution (-y/x) indicates that Helena is willing to give up y in order to consume more x. Therefore, at the utility maximizing combination, she will consume more units of y than x. Additionally, since Helena earns $50 per week and the price of x is $5 and the price of y is $10, she will not always spend half her income on x and half on y.

The given change in the equation Qd = 630 - 7P suggests that the quantity demanded has increased. This can be interpreted as an increase in the income of consumers in this market, which indicates that it is a normal good. Additionally, since the quantity demanded has increased, there would be a shortage in the market before it finds a new equilibrium. Therefore, options A and C are correct.